April 23rd, 2014 (InsideCostaRica.com) Ratings agency Moody’s is warning that Costa Rica could lose its current Baa3 credit rating should the new government of Luis Guillermo Solís delay fiscal reform until next year.

The warning comes as part of Moody’s latest credit opinion on the country, published on April 15th.

Now, Moody’s warns, the country could face losing its Baa3 rating if the country’s incoming government is unable to push through fiscal reforms this year. A downgrade to Ba1, the next notch below Baa3, would lower Costa Rica’s rating from investment grade to speculative grade, and could have a significant impact on the economy as the country would be forced to pay higher interest on its foreign debt bonds, such as the $1 billion worth of Eurobonds it put on the market on April 1st.

“We want to see a positive signal from the new government and how serious they are,” said Gabriel Torres, principal analyst for sovereign debt at Moody’s.

Torres added that the country’s current situation is “not sustainable,” and the ratings firm would likely review Costa Rica’s rating before year-end.

Soon-to-be Finance Minister, Helio Fallas, said that confronting the country’s fiscal situation would be a top priority, including the issue of tax evasion.

The incoming government, meanwhile, has promised not to raise taxes before 2016.

The most recent Moody’s report cites some of its concerns as the growth of public debt and the high fiscal deficit that have emerged over the last several years.

Moody’s points out that Costa Rica’s public debt skyrocketed from 25% of GDP in 2009 to 40% of GDP last year.

Meanwhile, Costa Rica’s fiscal deficit is expected to be 6% of GDP this year.

Costa Rica gained its Baa3 rating from a previous Ba1 rating in September 2010. The investment-grade rating has helped the country to raise billions of dollars from investors by issuing foreign debt bonds, including a $1 billion issue in November 2012, as well as two separate $500 million issues last year, and $1 billion in April of this year.

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disgusted

I can hear that flushing sound on the economy. Only going to get worse. Will CR go the way of Detroit City??

Ben

Anything can happen. I hope not Detroit.

Andrew

Ben Dover?

Andrew

Actually Detroit “manned up” admitted its failings and filed for bancruptcy. That will never happen in CR where “deny, deny, deny” is the rule of the day. Fallas will pay lip service to this Moody´s warning for a while, and then conveniently stick his head back in the sand. Sounds like a significant part of the Jamaican´s winning platform was ¨No New Taxes until 2016″. Unfortunately, the most important words uttered by Torres were “not sustainable”. Not sure how much more blunt he could have been.

turbooperator

Actually, Detroit didn’t “man up”. They were forced into it by the declaration of finanicial emergency. Otherwise Detroit would still be in denial. I think many still are. The legality and eligibility of the bancruptcy has been in the courts and news for close to nine months or more and continues to be a source of daily news. At least Kwame was put away, that you wont see here in Costa Rica

DaveP

cut spending, cut spending, cut spending. can no government official man up and saw what the real problem is, waist, to many useless ministries and government employees.

DaveP

I believe its something like, 12% of the population works for RECOPE, and 9% of the population work for ICE. Anyone know the exact numbers?

Ben

Hi DaveP the numbers are for Recope are higher 13.6% of the population work for Recope as for ICE it is much lower and getting lower as i write this. ICE is 5.5% of the population work for ICE. I do know that ICE is retiring 250 works at the end of April and May. These jobs will not be rehired. Recope is the monster and has many contractor from trucking and accounting and so on.

Ben

The Problem is Costa Rica is being told get rid of the Colon and use Dollar´s or anything else. I don´t know what they should do but most people paid in Colons pay there rents in Dollar´s. Lots of Costa Rican Credit cards are full to the limit and the banks can not get any money from them. The Colon could be a thing of the past very soon. I see Iceland wants to change to Canadian Dollar maybe we should do the same before its to late. With Intel leaving and B of A leaving there will be a lack of money coming in CAJA and general taxes in 6 weeks. The debt is going to get large over night. Costa Rica needs to do something big to settle thing out. More taxes might have to come but more US companies will leave over night. More taxes can´t happen or it´s good by everyone business and tourism and so on. Selling ICE is not going to fix this mess. Laying off goverment might happen but expect big problem in the streets. PLN have screwed thing up bad now the new goverment has all the problems. Congress should take a 60% pay cut now to show they are on board with change in Costa Rica. Anybody in Goverment that make $50.000 a year and above should take a pay cut of 60%. Trust me there are lots of Goverment that make this amount and sit on there ass all day and do nothing. Just a few thoughts

dr meno

YEAP CR is in line to be taken over by the BANK$TETRS in Europe. Just like Greece, Cyprus, Spain, etc. Say Good Bye to your country. THEY WILL REPOSSESS ICE, AYA, NATIONAL BEACHES AND PARKS, ETC. Laura and Oscar sold your country long ago. Austerity is here. CR NEEDS TO DEFAULT ON THE LOANS LIKE ICELAND, AND PUT THE HEJE OF THE CENTRAL BANK IN JAIL. I HAVE BEEN ON TOP OF THIS FOR YEARS, WATCH THIS VIDEO,